Buy IDFC; target Rs 152: KRChoksey

KRChoksey is bullish on IDFC and has recommended buy rating on the stock with a target price of Rs 152 in its May 11, 2012 research report.

"IDFC reported PAT of Rs335Cr growing 17% Y-o-Y below our expectation.  NII increased 24% Y-o-Y and 7% Q-o-Q to Rs 586 cr aided by strong loan growth (9.8% Q-o-Q) and stable spreads. Core operating profits (excluding capital gains) grew 16% Y-o-Y & 1% Q-o-Q to Rs546 crore. Noninterest income remained weak due to subdued performance in capital market linked businesses. Non interest income ex-capital gains declined 11% Q-o-Q to Rs111 crore. Capital gains decreased 68% Q-o-Q mainly due to one offs on account AMC stake sale gains in Q3FY12.  Approval and disbursement were down 25% and 31% y-o-y respectively reflecting severe slowdown in infrastructure financing space mainly in power sector. Asset quality remained stable; gross NPA and net NPA stood at 0.3% and 0.1% with total provision on assets at 1.5% of assets. Recent strong Correction (13.0% up in one month) in the stock offers favorable risk-reward on medium term investment objective.”

"Net interest income showed healthy growth of 27% y-o-y supported by infra NII (14% Q-o-Q). Strong loan growth and stable spreads helped to show strong NII. Lending business contributed ~ 81% of operating income during the quarter, whereas the share for non-interest income declined drastically from 28% in Q3FY12 to 18% on the back of lower capital gains and subdued capital market linked revenues and weak loan related fees. Non-Interest Income declined 9% Y-o-Y & 35% Q-o-Q to Rs139 crore. Fee income asset management, IB, remained subdued reflecting poor capital market conditions while Securities broking saw smart recovery mainly due to increased market volumes in cash segment. We expect net interest income to grow 21% CAGR over FY12-14E driven by steady loan growth.”

"Stable lending spread q-o-q- On rolling 12 month basis, core lending spread remained stable at 2.4%. The management is targeting refinance opportunity in operating infrastructure assets. Although, yield on operating assets is lower than fresh project funding but on risk adjusted basis it is attractive opportunity for IDFC. We expect IDFC to sustain core lending spread at 2.3-2.4% going forward. Cumulative gross approvals and gross disbursement declined by 25% y-o-y and 31% y-o-y respectively on the back of higher interest rates, uncertain policy environment and concerns in power sector. Loan book grew strongly 25.8% y-o-y and 9.8% q-o-q to Rs 48,184 cr driven by refinancing opportunity in telecom and transportation sector. We believe that IDFC’s strategy to focus on operating assets refinancing for balance sheet growth and optimum utilization of foreign borrowings window will drive earnings in uncertain operating environment in infrastructure financing. We expect infra loan book to grow 20% CAGR over FY12-FY14e driven largely by road sector and telecom.”

"IDFC has performed reasonably in tough macro environment. We have revised our FY13 earnings upward by 12% by factoring higher NIMs and lower investment depreciation. We expect IDFC to deliver 21% CAGR in earnings over FY12-14 driven by core operation. At Rs119, the stock is trading at 1.3x FY13 book and 9.6x FY13 earnings. We believe integrated business model, strong management capabilities, healthy return ratios, well capitalized and strong domain knowledge and healthy asset quality are key investment arguments for IDFC. Recent strong Correction (13.0% up in one month) in the stock offers favorable risk-reward; hence we upgrade our investment rating on the stock from HOLD to BUY with TP of Rs152,” says KRChoksey research report.

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